Vertical integration: modeling and evaluation

This paper aims at examining how a change in organizational structure affects a firm performance. In a competitive environment, firms have to “share” customers who want a given product/service. Since integration impacts prices, which is a major choice criterion for customers, it thus impacts sales and profits. A model is proposed that integrates production costs and reduction of the double marginalization effect. Thus, it enables to compare the monetary performance of independent and vertically integrated structures. The computational results stress the organization performance depending on the substitutability of the produced goods.